Press Releases

New Report Identifies Unintended Consequences for Small Business if Government Regulates Merchant Fees

TORONTO, April 1, 2009 – A new report from a leading small business organization in the U.S. warns of the negative outcomes that regulating the fees merchants pay for credit card acceptance would have on small business. The report also highlights the benefits credit cards bring to small business.

In the report, Chief Economist of the Small Business & Entrepreneurship Council, Raymond J. Keating, identifies the potential unintended consequences of government regulation of interchange fees, while outlining 10 key benefits small business receives from credit cards.

Keating notes that small business owners who use credit cards as a financing tool for their businesses will “get squeezed on several ends – higher costs to use their card for business purchases, fewer services and less innovation from issuers, and lower sales due to a decreased number of cards in use by consumers.”

The report also examines how government interference ultimately would do more harm than good with respect to credit card use and access for small business owners and their customers.

According to the report “The interests pressing for government price controls in interchange do not want a ‘free-market solution’ on interchange. They instead want government to overrule the market to impose their desires.”

According to Keating, one consequence of government intervention could be that “fewer cards can be issued and the benefits of competition are reduced. Assorted rewards derived by consumers from using their cards can be wiped out.”

“This report from a notable small business organization corrects some misconceptions about interchange fees, and most importantly, brings the benefits small businesses receive from credit cards to the forefront,” said Jennifer Reed, Vice President, Communications and Government Relations, MasterCard Canada. “The many benefits Canadian consumers and merchants receive from card acceptance continue to be downplayed by retail sector lobbyists. MasterCard looks forward to appearing before the Senate Standing Committee on Banking, Trade and Commerce later this month in order to discuss the payments industry.”

In the report, Credit Cards and Small Business: The Benefits, Opportunities and Policy Debate, the top 10 benefits are:

What’s good for consumers is good for small business. The gains consumers accrue due to the use of credit cards translate into benefits for the small businesses that sell goods and services to those consumers.

Helping to finance small business. Credit cards are a critical tool in expanding small business access to credit. According to the National Small Business Association, nearly one in two small business owners used credit cards to finance their business.

Canada has a well-functioning payments system that provides significant convenience and security to consumers and merchants. It has continued to operate effectively and drive commerce despite a global credit crisis. More than $240 billion in Canadian commerce is flawlessly expedited on credit card systems annually.

When interchange was regulated in Australia, it led to reduced card benefits to consumers and there is no evidence that retailers passed on savings in reduced prices – such a cash grab should not be repeated in Canada. As the Australian Financial Review noted: “…While some substantial costs have been removed from the system, consumers are now subject to opportunistic fees levied by merchants, whether it be ad hoc overcharging at the point of sale or the unavoidable imposts charged by the airlines for online payment where no alternative is available…”

A merchant that processes a credit card transaction enjoys guaranteed payment even at a time of increasing consumer default rates.

MasterCard operates a global debit infrastructure with centralized operations that run 24/7. The system delivers significantly greater scale than Canada’s incumbent debit network. It has had zero downtime in more than seven years.

MasterCard will create competition in the Canadian debit market where it has never existed.

About MasterCard Worldwide
MasterCard Worldwide advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes approximately 21 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercard.com.